Business Day Business Law & Tax, May 2021

BUSINESS LAW&TAX

A REVIEW OF DEVELOPMENTS IN CORPORATE AND TAX LAW

Greener goals no longer a ‘nice-to-have’

• Companies that do not pursue net-zero emissions will be left behind and shunned by investors

Lloyd Christie & Zinzi Lawrence ENSafrica

The racetoachieve

net zero emissions has playeda significant rolein pushing forward the fightagainst climate change.

Key stakeholdersare becomingalive totheopportunitypresented byadecarbonised economyand those whodonotgetonboardnow riskbeingleftbehind.

What is net zero?

Simply put,net zerois premisedon attainingabalance between greenhouse gas emissionsproduced and the amountremoved from theatmosphere.

The concept of net zero gained momentum following a 2018 report by the Intergovernmental Panelon Climate Changethat concluded thatto reachthe 1.5ºCtarget

committed byvarious countriesin theParisAgreement, global emissionsmust be reducedbyhalf by2030and needtoreach netzeroby 2050. Various countries, cities andcompanies have made commitmentsto achieve netzero. Most notably, in 2020the EU, Japan andChina announced their commitments to achievenetzero.

For its part,SA, a country stillheavily reliantonfossil fuels forpower generation, has committedto achieving netzerobymid-centuryinits low-emission development

WHAT REMAINS CLEAR IS THAT INVESTOR FOCUS ON ESG WILL CONTINUE TO GROW IN THE COMING YEARS

strategypublishedin2020. What does netzero mean for investment?

Realising their roleas catalystsintheglobalfightagainst climate change, investors are increasingly focusingon companies’ integration of environmental, socialand governance (ESG) in their business model and commitment towards achieving the netzerotarget.

This isgiven credenceby Larry Fink,CEO ofBlackRock, the world’s largest asset manager, in his annual letter to CEOswhere he urges companies to commit to netzero andalludes toa possible divestment in companiesthatfailtodoso.

From aninvestor’s perspective, companies that are bestplaced toreceiveESG investment are those that voluntarily adopt ESG principles and committo achieving netzero.

In 2020,the Financial

A CLEANER WORLD

Sector Conduct Authority, in collaboration with the International FinanceCorporation (IFC), conducted an industrywide surveythat was publishedin March2021.This survey looks into the opportunities available forthe SA retirement industry to leverage on greenand climate finance. This isa clear demonstration that key stakeholders are taking action towards facilitating the transition to a low-carbon economy.

In itssurvey, the“IFC estimates thereis $588bnin climate mitigationinvestment potential in selected sectors inSA upto 2030,and $29-trillion investment potential across 21 emerging markets representing 48% of global emissions. This does not includeinvestments needed to support adaptation

andresilience.”

What impact has Covid-19 had on net zero and ESG?

The Covid-19 pandemic has intensified the sense of urgency aroundclimate change. The International Energy Agency highlighted in areportthis yearthatglobal carbon dioxide emissions have returned to pre-pandemiclevels.

It has been argued that the Covid-19 pandemichas derailed somecompanies’ plans to “green” their businessesandintegrateESG.

However, thepandemic, undoubtedly presentsan opportunity for companies to alignmore closelywithclimate changeobjectives, including the commitment to achieve net zeroas part of their post-crisis recovery programmes.

Investor sentiment high-

lights that companies that do not adaptwill beleft behind, while those that embrace change will see greater opportunities.Itshouldnotbe understated thatto attainthe netzero targetandachieve success in attracting ESG investment will becostly and success willbe dependenton a company’s abilityto transition to clean sources of energy, reducingemissions from appliances by making use of available technology, amongotherefforts. Whatremains clearisthat investorfocus onESGwill continue togrow inthe comingyears.ForSA-basedcompanies, the robust environmentalandregulatoryframework provides a good basis for such companies to position themselvesfavourably andto attractESGinvestment.

LATERAL THINKING

Close look at free trade deal

•

Celia Becker, ENSafrica’s

Executive: Africa Regulatory and Business Intelligence, speaks with Business Law & Tax Editor Evan Pickworth about the African Continental Free Trade Area agreement

Celia Becker specialises in advising large multinationals expanding into Africa on thetax efficient structuring of investments, country risk profiles and tax and regulatory compliance requirements ofcountries throughout Africa, aswell as the in-countryapplication of legislativeprovisions.

EP: Tradingunder the African ContinentalFree Trade Area(AfCFTA) agreement has takeneffect, creating thelargest free-trade area inthe world.Are you positive aboutthe prospects this agreementwill bring for Africa?

CB: The factthat all member statesofthe AU(withthe exception ofEritrea) have signedtheAfCFTA, isaclear andpositive indicationofthe collective intentfor regional cooperationonthecontinent.

However, the effective implementation ofthe agreement is farmore complex and subject to various conditions to besuccessful. A key obstacle tosuccessful implementation is the lack of trade complementarity (thedegree to which the export profile of one countrymatches the import profileof another) among theAfrican member states.Not allAfricancountries wouldbenefit equally fromareductionintradebarriers,withthelargestproportional gains tendingto accrue to countries withthe most open economies already trading extensivelyin the region. TheAfCFTA is expectedto resultinabout $4.8bn of lost tariff revenue for Africannations, which willimpacttheirwillpowerto implementtheagreement.

A riskalso existsthat products manufactured in low-cost countrieswould be dumped duty-freeon the markets ofjurisdictions with limited infrastructureand manufacturing capabilities, thus furtherreducing their manufacturing capacity and resultinginjoblosses.

Participating jurisdictions would needto weighup the potential increasein corporate and personal income tax and value-addedtax which result from anincrease in trade,job creationandproduct diversificationagainst the losttariffrevenue. Without adequate provisions tocompensate for lossesresultingfromregional integration theagreement is unlikelyto befullyimple-

mented by all member countries.Therecenttradedispute between Kenyaand Uganda isacaseinpoint.

EP: It’s earlydays, but have you noticedan uptickin activity, or theintention to trade across borders?

CB: Africa’sregional economic communitiesare displayingstrongsupportforthe cross-border tradeunder the AfCFTA. Privatesector lobbies in thecontinent’s six trading blockshave formed the AfricanBusiness Council, a continentalumbrella body to spearheadthe business agendafortheAfCFTA.

TheCommon Marketfor Eastern andSouthern Africa (Comesa) alsoannounced it will establisha partnership framework tosupport the implementation ofthe continentaltraderegime.

Southern African Customs Union(Sacu) member states includingEswatini,

AFRICA’S REGIONAL ECONOMIC COMMUNITIES ARE DISPLAYING STRONG SUPPORT FOR CROSSBORDER TRADE

Lesotho, Namibiaand SA have signalledtheir commitment to theAfCFTA by submitting theirtariff offer, providing forpreferential tariffs forimports from AfCFTA memberstates, in February2021.

However, Botswana, the remaining Sacumember, has notyetratifiedtheagreement, which isdelaying implementation ofthe AfCFTAfor all Sacucountries.

Atnational level,countries have beenputting measures in place to facilitate trade under theAfCFTA arrangement.Kenya hasfinalisedan AfCFTA national implemen-

tation strategy,which is aimedatexpandingitssupply capacity andincreasing its exportofkey goodsandservices tostrategic markets acrossAfrica.

Botswana’s President Mokgweetsi Masisi announced that his government has secured supportfrom UN Economic Commission for Africa todevelop Botswana’s AfCFTA implementation strategyand thatthecountry was atan advancedstage of developing ane-commerce strategy, aimedat using digital platformsto facilitate trade.

Zambia,whichhasratified the AfCFTA asrecently as February 5,has announced the governmentwill soon issue astatutory instrument under theCustoms and Excise Act,required forthe agreementto havetheforce oflaw inZambiato pavethe way for tradingunder the agreement.

Nigeriais focusingon creatinganenablingenvironment forbusinesses inthe technology, agriculture, medical andmining sectors. The federalgovernment has approved theexpansion of existing freetrade zones (FTZs)andtheintroductionof newFTZsin themedicaland agricultural sectorsin response to thedemands of theAfCFTA.

The Ghana Revenue Authority offersfree registration with its customs division topotentialexportersseeking to do businessunder the AfCFTA andinvites exporters and thetrading publicto visit the CustomsTechnical Services Bureauat theGhana Revenue Authorityheadquarters inAccra forall enquiries concerningexportingundertheAfCFTA.

EP: Which areas of crossbordertrade lookthemost promising overthe next couple of years?

CB:Basedonrecenttrendsin trading,there isareasonable expectation thattrade in manufactured goods,food and agriculturalproducts will increase, while natural resources will remain a key commodity. Opportunities also existin theinformation andcommunicationsectors.

EP: Are tax regimes keeping pace with these changes?

CB: There have been some recent taxamendments directlyorindirectlysupportingtheaimsoftheAfCFTA.

Ghanarecognises thatfor the privatesector tobenefit from theAfCFTA, fiscal

incentives arerequired to improve thecompetitiveness of businesses.An industrial transformation programme was launched in terms of which importduties on imported equipment, machines andraw materials for localmanufacturing companies are waived and other taxrelief measuresareintroducedtoboostthelocalmanufacturingindustry.

Uganda’s IncomeTax Amendment Bill2021 introduced a taxexemption for income derivedfrom the manufacture ofchemicals, textiles, glassware,leather products, industrial machinery andelectrical equipment subject tocertain minimum capital investmentand local sourcing and employment requirements.

Rwanda approvedits “Manufacture andBuild to Recover Programme” in December 2020, which extendstax breaksandtax credits tobusinesses to reducethecostofinvestment for newmanufacturers as well asthose seekingto expandexistingoperations.

EP: Which African countries stand outfor developing business-friendly policies? Pleasegive afewexamples of these policies.

CB: It is stilldifficult to do business inmost African jurisdictions, ascompared to the restof theworld. Only two Africaneconomies rank in the top 50of the World Bank’s 2020Ease ofDoing Business report(Mauritius at 13/190 andRwanda at 38/190).

Rwandaremains atthe

forefront ofdriving continuousimprovement ofitsbusiness environment.Following a complete overhaul of its IncomeTax ActandCompanies Act in 2018,it gazetted a Partnership Lawin February 2021. According to the Kigali International Financial Centre, aimed atbecoming a leading financialcentre for global investorsseeking panAfrican opportunities,the law is expected tobenefit international privateequity funds andfundmanagers.

Kenyahas alsobeen focusing onfacilitating the ease ofdoing businessin the country. ItsBusiness Laws Amendment Act,2021 signed into lawon March30 2021, amendsvariouslaws,including theLaw ofContract and the Companies Actin line withthisobjective. Nigeriahas beennotedin theWorld Bankreport forthe notable improvementin its business environment. Over thepastyear ithasreduced the time needed to register a company,improveditsonline platforms andsimplified the

GOVERNMENTS

SHOULD DEVELOP A HOLISTIC POLICY FRAMEWORK IN CONSULTATION WITH STAKEHOLDERS

processfor businesspremises registration. Kenya, Rwanda and Nigeriaalso featureinthetop10listofRMB’s investment attractiveness rankingsfor2020.

EP:While thefocus withthe AfCFTA istrade andinvestment, is it true that most Africancountries arenot doing enoughto matchthis by developinginfrastructure andpolicies tosupport growth?

CB: Agreed. Africahas a vast infrastructuredeficit whichis constraining growth. The Covid-19pandemic hasfurtherinterrupted effortsto deliver key infrastructure projects. Key challenges remain reliableelectricity, affordablehousingandtransport infrastructure, which also impact on the ability of the AfCFTA todeliver its intendedbenefits. African governments adopted thesecond phaseof theProgramme forInfrastructure Developmentin Africa (Pida)with anesti-

mated budget of$161bn in Februarywith theaimto deliver 69regional infrastructure projectsin the energy, transport, transboundary water,and information andcommunication technology sectors.Projects which contributeto integrationacross regionsandespecially thosefacilitating the implementation of the AfCFTA havebeen prioritised. Hopefullythe intended benefitsof theseprojectswill soonbecomeareality.

TheUN EconomicCommissionfor Africaisworking with Africancountries to increase investmentin key sectors onthe continent, includinginfrastructure.

EP: Howcan Africancountries improveincentives for theprivate sectortoinvest in infrastructure?

CB: Aninclusive consultative partnership approachis important. Governments shoulddevelop aholisticpolicy framework inclose consultation with stakeholders, taking intoconsideration not only relevantlegislation but also operationalrules and administrative arrangements. There is also a definite need to improveproper governance,transparencyandfairnessin thedevelopmentand procurement of infrastructureprojects. Regulatory and ongoing compliance requirementsfor project developersand contractors should be clear and be applied ina straightforward andconsistent manner through user-friendly administrative processes. Targeted tax reliefand simplified administrativeprocedures, particularlyin respect of the importation of equipment andmaterials isof key importance. Facilitatingthe grantingofvisasand/orwork permitstokeyexpatriatestaff members alsocontributes to attractingrelevantinvestors.

EP:Finally, youradvicefor a buddingyoung lawyer looking at excelling in providing advice for businesses across Africa.

CB:Athoroughknowledgeof local legislationand regulations is ofthe utmost importance. However,even more imperative isa clearunderstanding ofthe practical application ofsuch provisions by authoritiesand an appreciation ofthe commercial realitiesfaced bybusinessestoprovideclientswith comprehensive practical adviceandsolutions.

BUSINESS LAW & TAX

Privacy claims on metadata

• Consent not only basis on which information may be processed

Ahmore Burger-Smidt Werksmans

Inthe EU,metadata isa known data privacy problem.The questionis, inthe contextof SA,are companies and regulators sensitive to what metadata is,what itsimplications are, and why itis relevant in the dataprivacy regulatory space;and areanyregulatory changes anticipatedin lightof internationaldevelopments?

Metadata refers todata concerning otherdata. Examples ofmetadata would include theinformation that relates toan electronicfile, suchas thetimeat whichthe fileordocumentwascreated, the author who created the file, where orhow the file wascreated,andsoforth.

Historically,this areaof dataprivacylawhasbeenleft largely unregulated. More recently, however,and inall likelihood owingto greater awareness ofthe potential risksitmay poseifabused, therehasbeenaconsiderable drive towardsthe regulation ofmetadata.

Theconcernforregulators and privateindividuals alike is that metadata,much like data, can reveal sensitive and personal informationabout a user, which ifleft unregulated,would allowdataprocessors tobuild aconsumer or user profile which may relate toaspects oftheir livessuch astheir tastes,habitsand

day-to-dayactivities.

Thisis becausemetadata includes telephonenumbers called, websitesvisited, geographical location,time, data andduration whenanindividualmade acall, forexample.Thisallowsprocessorsor analysts to builda consumer profile anddraw accurate conclusions as to a particular data subject’sprivate life, social relationshipsand whereabouts.

Consideringtheabove,EU regulatorshaverecentlypublished a draft ePrivacy Regu-

THE CONCERN IS THAT METADATA, MUCH LIKE DATA, CAN REVEAL SENSITIVE AND PERSONAL INFORMATION

lation,which seekstoregulatethisareaofthelaw.

SAhasnoequivalentePrivacyregulation. ButEuropeandata protectionlaws tend toset the tonefor the rest ofthe world andalso SA law.As such,European developments remain particularlyrelevant forcompanies conductingactivities inSA and who maysoon be required to havemore comprehensive privacypolicies and noticesin placewhich specifically referto howthey

UNDER THE MICROSCOPE

intend to deal with a user's metadatacollected viaits website,forexample. What then,are thekey amendments proposedby thedraftregulationinrelation tometadata?

In itscurrent form,the regulationfirst andforemost makesitpermissibleforelectronic communications metadatato beprocessed, andfor thatprocessedinformationtobe storedandcollectedusing terminalequipmentfrom theend-user’s terminal.

It also creates additional safeguardsfor individualprivacyby requiringthat a “data protection impactassessment”isconductedaswellas a “consultation ofthesupervisory authority” prior to any processing ofmetadata, wheresuch processingof

metadata is “likely toresultin a highrisk to therights and freedomsofnaturalpersons”

Afurtheraspectwhichthe draftregulationshedslighton isthe conceptof locationdata definedas “data processed by meansof anelectronic communications networkor service,indicating thegeographicposition oftheterminal equipmentof a userof a publicly availableelectronic communicationsservice”

The processing of location data is particularlyuseful in circumstances where, for instance, a spamcaller needs tobetraced orwhereemergencyservices needto respondto personscritically injured orin criticaldanger. The draft regulations say that under suchcircumstances, measures such ascall line identificationwould infact

CONSUMER BILLS

constitutea justifiablelimitation orrestriction onthe right toprivacy.

While many people tend tothinkofconsentasthepredominantbasis intermsof whichmetadata(orevendata for that matter)may be processed,various otherlesserknown acceptablereasons for processingdo existand wouldinclude:

● Wheresuch processingis necessaryfor theperformanceof anelectroniccommunications service contract;

● Wherethe processingis compatiblewith theinitial reasonforcollection;and

● The protection of a vital interest.

Toelaborate,thedraftregulation hasfirst andforemost included “performance ofa contract” as anacceptable legal basisin termsof which metadatamaybeprocessed.

Second, it states that metadatamay beprocessed, for reasons unrelatedto that for which themetadata was initiallycollected, wherethe processingof suchmetadata isneverthelessinaccordance with(orcompatiblewith)“the purposeswhichthemetadata [was]initiallycollectedfor”

Third, where humanitarianpurposes ordisasters (presumablysuch asCovid19)and otherphenomena pose athreat to avital interest, the processingof such metadata in orderto protect such aninterest isalso permissible.

To safeguard the above, theend-user muststillbe providedwith therequisite information concerning such

processing activities,and would still havethe right to object tosuch processing,in termsofthedraftregulation.

To realise the importance orrelevance ofmetadata froma commercialperspective, one would merely have toconsider afewpractical examples ofcommercial usagesof suchmetadata, suchas:

● Heat maps,which aredata visualisation techniques that display theextent ofa phenomenon throughcolours (such as afootballer’s heat mapshowing wherehe/she has spent mostof his/her timeonthepitch);

● Trafficmovements inspecificlocations atspecific times (as when one uses a GPS navigation appand it givesyouthe abilitytoalert otherdriversofapolicepresenceat particularintersections);and

● Emergencyservicesapplications examples which spring tomind arethat of Namola,ReactPlus orDiscoveryInsure.

Without the processing of metadata, thesebenefits wouldnot beavailable tothe end-user. Insistingon anonymityof informationis alsonotnecessarilyasolution to the problem of metadata processingasone’sidentityis oftenrequired forthemetadata collected to have any significanceorrelevance.

Allin all,freshregulatory changesare onthehorizon when itcomes to theuse of metadataand SAcompanies ought tobe preparedfor the timewhen thesetranslate intoSAlaw.

As disasters increase, resilience diminishes

Thecapacityofpeople andcorporations worldwidetocope withhugelossescausedby disastersisunderstrain.

Enormouslossesare beingbornebygovernments, byinsurersand,mostofall, byindividualsasthe pandemichasproved. Scientificcreationand individualprocreationhave producedahighlycomplex andhighlypopulatedworld wherethesizeand complexityofthesystems andthesizeand concentrationofpopulations ismatchedbythesizeofthe lossesincurredwhen anythinggoeswrong.For thosewhocanafford insurance,thebalance betweentherightpremium andthecoveryoucanbuy forapossiblelossisslowly becomingdifficulttobridge. Youbuildoneofthe

PATRICK BRACHER

biggestcontainershipsinthe worldandastrongwindand othercircumstancescauseit toblocktheSuezCanal. Withinaweektheinsured lossesalonearecloseto $100m.WinterStormUri causesafreezeinTexasthat causeswidespreadpower outages,bringingdown almosttheentireTexas powergrid.Thelosseshave beenestimatedat$130bn,of whichtheinsuredlosseswill beabout$15bn.

TheSolarWindscyber catastropheinDecember 2020attackedsoftware

whichisusedbymorethan 300,000organisations worldwide,includingmajor internationalcompanies, resultinginadirectcostto insurersestimatedat$90m.

Thelossesfromcyberattacksincludingdata breaches,ransomware attacksandbusinesse-mail scamsarehappeningallthe timeandthelossesare growingexponentially.Some expertshaveestimatedthat globaleconomiccybercrime costswillreach$10.5-trillion annuallyby2025.

TherecentCapeTown fireremindsusthatin October2018thetownof Paradise,California,witha populationof26,000was 95%destroyedbyfireina townwhereriskswere uninsurableatareasonable cost.Thestategovernorhas signedabillallocating $536mtofightwildfiresin

Californiawhichcostthe stateabout$9bnin2020. Inthefaceofthese potentiallosses,thereare callsforanincreasing numberofinitiativesfor public-privatecollaboration tocopewiththedisasters. Weareallfamiliarwith whatishappeninglocallyin thefaceofthepandemic wheregovernmentspending hadtobedivertedtoprivate lossesbutcouldnotgo nearlyfarenough.

Internationally,world leadershavecalledfora globaltreatytoprotectstates afterCovid-19becauseofthe inevitabilityoffutureglobal pandemics,whichnosingle governmentnorthe insurancemarketworldwide canaddress.

SocialunrestinSAinthe late1970sledtothe establishmentoftheSA SpecialRisksInsurance

Associationunderthe auspicesofthegovernment tocopewithpotentiallyhuge lossesbeyondtheordinary scopeoftheinsurance market.In2021,theSwiss FederalCouncilrejecteda proposalforagovernmentbackedinsuranceschemeto coverthelossesfromfuture pandemics butthatmay notbethelastwordon thatsubject.

Ifyoulookatthelossesto theinsurancemarketandthe lossestothepublicingeneral fromanydisasteryouwill findthatupto90%isborne bytheuninsured.Publicprivateinitiativesare importantwherethereare majorinternationalrisks suchaspandemichealth risks,cyberrisksand internationalterrorism. Ofcourse,themoneyhas tocomefromsomewhere andwewillallhavetopay foritsomehoworotherin taxes,premiumsorlevies. Insurersandreinsurerswill alwaysplayamajorpartin keepingthecommercial worldgoingbuttheycannot doeverything. Alonger-termview needstobetakensothatwe donothavetorelyon randomdecisionsmadeto copewithimmediate problems.Wehavetostart doingbetterthanthat.

ESTIMATES ARE GLOBAL ECONOMIC CYBERCRIME COSTS WILL REACH $10.5-TRILLION ANNUALLY BY 2025

●

BUSINESS LAW & TAX

Investigation reports in arbitration

• Can employers be compelled to disclose pre-hearing reports in arbitration proceedings?

Siphamandla Dube & Lee Masuku ENSafrica

Employers who suspect employees areguilty of misconduct often appoint forensic investigators orlegal practitionerstoinvestigatewhether such misconductexists. They then preparea reportwith recommendations onhow to proceed, including whether disciplinary actionscan be taken againstthe employees concerned.

Incases wheredisciplinary steps are taken based onthe factsandrecommendations set out in the report, itis notuncommon for employeesfacing these charges torequest the employer disclosethe investigation report. But is the employerobligedtodoso?

InSA SportsConfederation andOlympic Committee (Sascoc) vCCMA andOthers, the labourcourt hadto consider thecircumstances in which the discoveryof an investigation reportmay be compelled duringarbitration proceedings.

Inthis case,Sascoc’s board appointedits attorneys to conducta preliminary investigation intothe conduct ofthree ofitsemployees. Sascoc’sattorneysprovidedit with two investigation reports dealingwith allegations ofmisconduct commit-

tedbytheemployees.

This prompted the employer toinstitute disciplinary proceedingsagainst the threeemployees. This resulted intheir dismissal. The employees challenged the fairness oftheir dismissals and, during the subsequent arbitrationproceedings, theemployees’ legal representative requestedthat Sascocdisclosecertaindocuments,includingthereports.

Sascoc refused todo so becausethedocumentswere notrelevant.

RELEVANCE MUST BE ASSESSED IN RELATION TO THE NATURE OF THE PROCEEDINGS BEFORE A COMMISSIONER

Theemployeesthenmade a formal application to the arbitrating commissionerfor disclosureofthereports.

The application was opposed by Sascoc because the reports were irrelevant and, in any event, protected bylegalprofessionalprivilege in circumstances where its attorneyshadbeeninstructed topreparethem.

In determiningthe application, the arbitrating commissioner considered rule 29 ofthe CommissionforCon-

ciliation, Mediation and Arbitration (CCMA) rules, which deals with thedisclosure of any documents or material relevanttothedispute.

The arbitratingcommissioner concluded that the reports were not protected bylegalprofessionalprivilege because they had not been obtainedfor thepurposesof pending or contemplated litigation, nor for the purpose of giving or receiving legaladvice.

Insofar asrelevance is concerned, the commissioner concluded the reports related to the substantive fairness of the employees’ dismissal in thatthey were charged based on informationfoundinthereports.

He furtherfound the employees may have wished to use thereports to challenge Sascoc’s witnesses’ credibility during the arbitration. Therefore, it would also be relevant to the proceedingsforthispurpose.

Sascoc tookthe commissioner’s ruling onreview to thelabour court.As astarting point, the labour court noted that the reports were not usedas evidenceinthe employees’ disciplinary hearing. Instead, the reports formed partof thefactual basisfor Sascoc’s decision to pursue disciplinary charges against the employees, based on documentary evidence uncoveredduringtheinvestigation,whichwasdiscovered

to the employees. Furthermore, as summarised in the reports, the witnesses who provided information to investigators would,where relevant, testifyat thearbitration, as had been the case in thedisciplinaryhearing.

In coming to its decision, the labour court considered the wording of rule 29 of the CCMArules.It heldthatrule 29 ought to be interpreted in the context ofthe fact the CCMA isa statutorydispute resolution agency andthat a commissioner is required, in terms of section138(1) of the Labour Relations Act,1995 to determineadisputefairlyand quickly and with the minimum oflegal formalities.It further heldthat theonly criterion forthe disclosureof documents that rule 29 sets outisrelevance.

Relevance, itwas held, must be assessedin relation tothe natureof theproceedings before a commissioner, which involvedwhether certain dismissals were allegedly substantively and procedurallyunfair.

The labourcourt pointed out that anarbitration is a newhearing, andit foundthe commissioner appearedto haveignored thisfact.In proving that the employees’ dismissalswereprocedurally and substantively fair,it was

incumbenton Sascocto establish,on theevidence that itelected to leadin the arbitration,that:

● There was a fair reason for thedismissals;

● Dismissalwas anappropriatesanction;and

● The employees were affordedan opportunityto state their cases before being dismissed.

What acommissioner must determine iswhether a dismissalisfair inlightofthe evidenceadmitted atthe arbitration.This doesnot mean the commissioner mustmerely reviewtheevidenceconsidered bythe employer when itdecided to dismissanemployee.

Thelabourcourtfoundthe employeeshadnorighttothe discoveryordisclosureofthe reportswhenthedisciplinary hearing wasconvened. Therefore, thecommissioner wasincorrect inholdingthat thereports containedinformation relating to the substantivefairness ofthe

A

COMMISSIONER MUST DETERMINE WHETHER A DISMISSAL IS FAIR IN LIGHT OF THE EVIDENCE ADMITTED AT THE ARBITRATION

employees’ dismissals merelybecause theygave risetothechargesagainstthe employees. Instead,the disciplinary chair provided thesubstantive reasonsfor the employees’ dismissals in hisfindings, whichreasons werediscovered andprovidedtotheemployees.

The labour court, therefore, foundthe reportswere entirely irrelevant to the fairness ofthe employees’ dismissals, particularly given thattheywerenotusedinthe disciplinary hearingand would notbe reliedon by Sascocinthearbitration. Given its findingthat the reportswerenotrelevant,the court heldthat itwas unnecessary to deal with the applicationof legalprofessional privilege concerning thereports.

Ultimately, it set aside the arbitrator’sruling andheld that reports werenot subject to disclosure interms of rule 29oftheCCMArules.

THOUGHTS ON THE JUDGMENT

The basis for the labour court’s findingwas thatthe employer’s investigation report had not been relevant tothe arbitration.The employer had notrelied on theinvestigation reportitself to justify the dismissal of the employees.Rather, ithad utilisedthe documentaryand other evidenceset outin the report to justify the dismissal. This evidence had been disclosedtotheemployees.

This means that, should employerswish toensure such a reportshould not be disclosed,they oughtto extractthe documentaryevidenceobtained duringan investigationandrelyonsuch evidence,together withwitnesses’oraltestimony,during adisciplinaryhearing. Thisisto avoidcreatinga situationwhere aninvestigationreport becomesrelevant to the issuesin dispute and must,therefore, bedisclosed toemployees.

● This article was reviewed by Peter le Roux, executive consultant in ENSafrica’s employment department.

Why ultimatums to strikers should be clear

Jonathan Goldberg & Grant Wilkinson Global Business Solutions

When acompany issuesan ultimatum tostriking workers thatthey must return to workor otherwise face dismissal this ultimatum needs to be clear and unambiguous. If itdoes notmeet these requirements, thecompany could riskhaving dismissed employees reinstated.The case ofAssociation of Mineworkers andConstruction Union obo Rantho and

others vSamancor Western Chrome Mines (2021) 30 LAC 1.11.7illustrates this principle.

During 2013,members of the Associationof Mineworkers and Construction Union(Amcu)engagedintwo unprotected strikesin support of ademand that Amcu should be recognised as the sole bargaining agentin two oftheemployer’smines. A totalof 158Amcu members who were on final warning forthe earlier strike weredismissed. The employee andunion referred

themattertothelabourcourt, whichfoundthedismissalsof theseemployeestobefair.

The matterwas referred tothe labourappealcourt (LAC) by theemployee and the union. The court noted that the company had issued three ultimatums,giving the nightshift23hourstoresume work, theafternoon shift eight-and-a-half hours and theday shiftonehour. It indicated thatdisciplinary action would followagainst those whodidnotcomply.

Onthebasisofthesefacts, the appeal court held that the

labour courthad misunderstood thelegal consequences ofthefirstultimatum.

While participationin an unprotected strike constitutesmisconduct,theCodeof Good Practice: Dismissal makes it clear that such participation doesnot always warrant dismissal.The code also providesthat unprotected strikersshould begiven sufficienttimetocomplywith ultimatums, whichmust be clearandunambiguous.

The firstultimatums, in thiscase,were notclearbut indicated that dismissal

wouldfollowifafinalultimatumwasnotcompliedwith. When unprotected strikersresumeworkinresponse toanultimatum,theymaynot be dismissed for the act of striking. An ultimatumis a waiverof theright todismiss the strikers whoheed it, unlessthere isgoodreason fora change.Inthis case,the strikers mustbe timeously informed ofthe withdrawal ofthewaiver. The employerhad not reversed oramended its waiver. Thatthe rightto take “disciplinary action” against

the strikers wasreserved in thefirst ultimatum.Theright had created ameasure of ambiguity thatfavoured the employees. Thecourt held that dismissal was not an appropriate sanctionin the circumstances.

The courtfound thatthe employees shouldbe reinstated.The courtlimitedthe periodinwhichthereinstatement should bemade retrospectivetoJune12020. The appealwas upheld, andjudgment ofthelabour court wasamended accordingly.

BUSINESS LAW & TAX

Galaxy S7 is indeed a phone

• Court rules Samsung device is not a machine for tariff purposes

Keketso Kgomosotho & Virusha Subban Baker McKenzie

On March18 2021 the Pretoria high court handed down judgment in the matter between Samsung ElectronicsSA and the SARevenue Service (Sars). The court had to decide whetherthe Samsung Galaxy S7should beclassifiedunder the “machine” tariff,ascontendedbySamsung, orremain underits “telephone”tariffdetermination.

On July 32017, Samsung applied for atariff determination for its imported multifunctional device,the SamsungGalaxy S7,undertariff heading TH8517.62.90 or tariffheading TH8517.69(the machinetariff).Thiswasafter Samsung discoveredthat a competitor product had received atariff determination undertariff headingTH 8517.62.90 the classification of “machines forthe reception, conversionand transmission orregeneration of voice, imagesor other data”. Thisclassification also applies to laptopsand computers,andisdutyfree.

Atthe timeofimportation, Samsung’s GalaxyS7 had received a determination under TH8517.12.10 the classification for “telephones for cellular networks or for other wirelessnetworks designed foruse when carried in the handor on the person ” (thetelephone tariff), whichissubject toanad

valoremdutyof9%.Samsung immediatelysubmittedapplicationsfor refundsofthe customs dutyon previously importedgoods.

OnSeptember 272017, and afterhaving reconsidered theSamsung Galaxy S7’s specifications, Sars agreedwithSamsungthatthe devices are “smart devices classifiable undertariff subheading8517.62.90”andgave Samsung aformal tariff determination under tariff heading TH8517.62.90 (the machinetariff).

Sars made undertakings to processSamsung’s refund applications.

However, onApril 112018 Sarsagain changeditsmind and withdrewSamsung’s determinations underthe machine tariff,with retrospectiveeffect fromAugust4 2017. Thewithdrawal meant that Samsung wasno longer entitled to any refunds with respect toprevious imports and was now liable for duties in respectof theimported products. Inits place,Sars made anew determinationin terms of whichthe Galaxy S7 was classifiedunder tariff heading TH8517.12.10 (the telephonetariff).

Samsunginsisted theuse of the device had long

SAMSUNG’S ARGUMENTS FAILED BECAUSE THEY WERE PREMISED ON THE POST-USE OF THE PRODUCT

MOBILE MUDDLE

evolved from a principally telephony function; that the use ofthe devicerelates to theconnectiontotheinternet, social media, music and games, andnot mainlythe makingof telephonecalls.As such,theappropriateclassification was the TH 8517.62.90 (themachinetariff).

Samsungreliedonanumber of market survey reports, whichindicatedthattheprincipal functions of smartphones like theSamsung S7 are mainly notfor telephony use, but ratherfor apps (which are not available in a traditional mobilephone); lightning-quick wireless internet connection; video calls,messagingandpictures;

and a range of data communications.On thisbasis,voice transmission is not the principalfunctionofproductslike the GalaxyS7 andtherefore the appropriate classification oftheproduct isunderthe machinetariff.

Sars, on the other hand, maintained that the use of the product, using the wireless network to make WhatsApp calls,Skypeetc fellunderthe definition of operating as a telephone “for other wireless networks under subheading 8517.12”. Sars’s strategy here was perhaps more fundamentalist drawing the court’s attention to the device’s basicconstitutive features, whichcumulatively

meant the Galaxy S7 was a telephone facility network.

Forexample,Sarsstatedthat:

● “The designis suchthat they are smallenough to be carried in the hand or on the personwithahigh-resolution touchscreen of about five inches;

● It has a speaker at one end whichisaudiblewhenplaced against the operator’s ear and at the other end has a microphoneto receivespeechor voice from the operator’s mouth;

● Ithasslots fortheinsertion ofSIM cardsto operateas telephonesandcommunicate onacellularnetwork;and

● It has electronic keypads and software which enable the user todial a telephone numbertoinitiateatelephone call and to terminate a telephonecall.”

Thisappearstobearather elementary view of devices such asthe GalaxyS7, which inuseanddesignresemblesa computer more than a traditional telephone. A research report froma globalstudy conducted byCounterpoint showsthatsmartphoneusers use their devices for mobile computing activities primarily.Many usersrunbusinessesandotheraffairsfromtheir devices, while others consumedigitalcontent.

Despite this, the court disagreed with Samsung and heldthatSamsung’sassertion that theproduct isnot atelephone for cellular networks butamachineakintoalaptop or desktop was disingenuous givenithastelephonyfunctions. The courtwas unpersuadedby thefact thedevice has functions foundin laptops and desktops, holding thatthose functionsdonot detract from its principal

function of beinga telephone forcellularnetworks. Ultimately, Samsung’s arguments failedbecause they were premised on the post-useof theproduct.The court was clearthat the standard for determining the appropriate tariff heading the device wouldfall underwas the objectivecharacteristics andproperties ofthedevice atthe timeof presentationfor customs clearance. Accordingly, Samsung’s intention regarding the customer’s use of the product after importation was, contraryto Samsung’s premise, not conclusiveofitsclassification. The courtconcluded the Galaxy S7has allthe features that conformto thedescription of tariff heading TH

A

REPORT SHOWS SMARTPHONE USERS USE THEIR DEVICES FOR MOBILE COMPUTING ACTIVITIES PRIMARILY

8517.12.90 in thatit is handheldanditsprincipalfunction istelephony. Samsung’s application wasdismissedwithcosts. Competing businesses that importcellphone products intoSA usingthe machine tariff nowface the riskthatSarscouldattemptto reclassify thosedevices in linewith theSamsungjudgment. Thismeans importers couldbe liableforan advaloremdutyof 9%ifdevices are reclassifiedunder the telephonetariff.

Provident fund changes kick in at last

Wesley Grimm, Joon Chong & Sam Varrie Webber Wentzel

The explanatorymemorandum that accompanied the 2013bill suggestedthat a “strong link” existed between the inadequateretirement funds held by members of provident fundsafter their retirement andlump sum payouts toprovident membersonretirement.

Thepurposeofthechange wasto ensureprovidentfund members hada secure source ofincome during retirementand toensurethat retirement interestswere not depletedtooquickly.

Significantly, it wasalso to

From March 1 2021, members of provident funds on retirement willhave hadto buy an annuitywith twothirds oftheir retirement funding, bringing them in line with pensionand retirement annuityfundmembers The mandatory annuitisation ofprovident funds, which was first proposed in 2013 inthe TaxationLaws Amendment Bill,2013 (2013 bill), finallybecame areality on March 12021 after a historic agreementwith all Nedlacconstituencies. Previously, onlypension fund andretirement annuity fundmemberswererequired to annuitisetwo-thirds of theirretirementinterestupon retirement. This applied unless a member’sinterest in a retirementfund wasless thanR247,500,wherethefull amount couldbe withdrawn asalumpsumonretirement.

harmonise thetreatment of thethree differentformsof retirement fundsin SA, namelypensionfunds,provident fundsand retirement annuityfunds.

Labour unions initially challenged the proposed compulsory annuitisation of provident funds. It was also laternoted, duringthestandingand selectcommitteeson finance’s discussionon the Revenue Laws Amendment Bill, 2016,that amisconceptionarosethattheproposalto annuitise providentfunds was an attemptby the government tonationalise providentfunds.

Consequently, theimplementation ofthe mandatory annuitisation oftwo-thirds of provident fundpayouts on retirement was postponed

multipletimes, untilitwas finally announcedin parliamentin2020thatthechange would beeffective from March 1 2021.This was confirmed byfinance minister Tito Mboweniduring the 2021budgetspeech.

With effect from March 1 2021, and subjectto certain conditions andprovisos, no morethan one-thirdofthe totalvalue ofamember’s interestin aprovidentfund may be commuted for a

THE PURPOSE WAS TO ENSURE PROVIDENT FUND MEMBERS HAD A SECURE SOURCE OF INCOME DURING RETIREMENT

single, lumpsum payment and theremainder mustbe annuitised.

This general rule will not apply wheretwo-thirds of the total valueof a member’s interest doesnot exceed R165,000, orthe memberis deceased, orthe interestis transferring toa preservation orretirementannuityfund.

The generalrule issubject to severalprovisos, including thattheinterestheldbyprovident fundand provident preservation fund members whoare55orolderonMarch 12021willbeunaffected.

Their additional contributions andfund returnswill also be unaffectedby the amendment.

Inany othercase,the interest and fundreturns of members ofprovident funds

or provident preservation fundswhowerememberson orbeforeMarch12021willbe unaffectedby thechange,as willadditionalamountscredited.Onlycontributionsmade fromMarch 12021 willbe affectedbythegeneralrule.

The implementationof the mandatory annuitisation of two-thirds ofprovident fund payouts onretirement forms part of thegovernment’s plan to ensurethat providentfund and providentpreservation fund membersaccess their retirement funds sustainably andistobewelcomed.

However, thesignificant and in our view unnecessary delay inits commencement means thata numberof peoplemay havewithdrawnand spenttheir interestsin fullin theinterveningperiod.

BUSINESS LAW & TAX

Alternative compensation

• Constitutional Court opens the door to other ways to pay damages than a monetary lump sum

Aslam Moosajee & Vishana Makan ENSafrica

The Constitutional Court recently handed downa landmark judgmentthatdamages may beallowed to bepaid by methods alternative tomonetarycompensation.

The judgmentrelated toa matterthat waspreviously handledbythehighcourtand Supreme Courtof Appeal.In this matter, the mother of a minor (plaintiff/respondent) whowas diagnosedwith cerebral palsy following injuries sustained atbirth at a state health-care facility, claimed in excess of R32m in damagesfrom theMECfor health, Gauteng(defendant/applicant).

The high courtgranted an orderpursuant toanagreementbetween theparties, which stated that “the defendant shall payto the plaintiff 100%ofheragreedorproven damagesin herrepresenta-

tivecapacityforandonbehalf ofherminorchild”

The applicant sought to develop the common law to allow for compensation through alternative means, suchastheprovisionofmedical servicesin thepublic health-care sectorin lieuof thepayment ofmonetary compensation. The Constitutional Court hadto determine whetherthe highcourtorder meantthat paymentofthe damages could only take the form ofone lumpsum soundinginmoney.

The ConstitutionalCourt reiteratedthe generalrule relatingto theinterpretation of court orders: “The starting point isto determinethe

THE INCLUSION OF THE WORD

‘PAY’

DID NOT NECESSARILY PRECLUDE ALTERNATIVE METHODS OF COMPENSATION

manifestpurpose ofthe order.In interpretingajudgment or order,the court’s intention is tobe ascertained primarilyfrom thelanguage of the judgment or order in accordancewith theusual well-knownrules relatingto theinterpretation ofdocuments.Asin thecaseofa document,the judgmentor order and the court’s reasons for givingit mustbe readas a wholeinordertoascertainits intention.”

IMPLICATION

Onapurposivereadingofthe courtorder,it washeldthat the inclusion of the word “ pay ” did notnecessarilyprecludealternative methodsof compensation,but ratherthat the implicationof theorder was that theMEC for health wasliableforcompensation.

The court alsoheld that theabove interpretationis better alignedwith thevalues ofthe constitutionandthat wherea viableinterpretation ofany documentpromotes constitutional values, that

interpretationmust bepreferredover aninterpretation whichdoesnot.

The court wasof the view thatconfiningthehighcourt’s order to paymentof a lump sumindamages isatodds with the rights of access to courtsand potentiallyunderminestherightofeveryoneto haveaccess topublichealth services.It alsopotentially

underminesthe rightsof childrento basichealth-care services.Inaddition,aninterpretationshould notlimitthe courts’ ability todevelop the commonlaw intermsof sections39(2) and173 ofthe Constitution.

The Constitutional Court alsotook intoconsideration thatconfining paymentto lumpsum monetarypay-

mentsimpedesthefundingof health-care programmes, whichwillbe affectedifa large portion of the state’s budgetgets allocatedto medico-legalliabilities. Thisjudgment openedthe door for the development of the common lawby interpretingthe orderin amanner whichdid notlimitthe mannerofpayment.

Market inquiries: commission surges ahead

Daryl Dingley, Tenisha Burslem-Rotheroe & Hoosein Mayet Webber Wentzel

The CompetitionCommissionhaspublishedfinalterms of reference for an inquiry into competitionamong selected digitalplatforms, as well asits findingsfrom an investigationintocompetition inpublictransport.

In recentyears, thecommission hasused market inquiries asan importanttool to assessthe competition dynamics inseveral industries, suchas telecommunications, healthcare and groceryretail.

Overthe pastfewweeks, therehavebeenkeydevelopmentsin twocurrentmarket inquiries. Inrelation tothe online intermediation platforms market inquiry (OIPMI),guidelinesforparticipation inthe OIPMIand final terms ofreference (TOR) havebeenpublished.

The commissionhas also released the finalPublic Passenger Transport Market Inquiry(PPTMI)Report.

Webrieflydiscusstheoutcomesand thestatus ofthese marketinquiriesbelow.

The commissionhas published final TORahead of an inquiry intoany potentially anticompetitive aspectsof selecteddigitalplatforms.The

updatedfinalTORcomesless than two monthsafter the draft TOR.The commission has adoptedan expedited approachtotheOIPMI,inline with the18-month completion deadlinefor market inquiries introducedby the Competition Amendment Act. The OIPMIwill commence in mid-May 2021 and the commissionis expected toconclude theinquiryby October2022.

Following public and stakeholder commentson the draft TOR, the scope of the inquiryhas notchanged substantiallyin thefinalTOR. One change isthe removal of specific industryparticipants andsectorsintheOIPMI.

The participationguidelinesset outthe fourphases of the OIPMI and parties that may participate(for example members of the public, the government andfirms that representstakeholders).

The participationguidelines also provide details of how relevantparties willbe able toparticipate inthe inquiry, withparticular reference towritten submissions and virtualpublic hearings for oralpresentations. The guidelines highlightthat the commission maysummon individuals or organisations to appear beforethe inquiry in terms of section49A of the CompetitionAct.

The OIPMIwill bethe first market inquiryconducted following the extensive amendmentstotheCompetitionAct. Intermsof thenew market inquiryprovisions, the commissiondoes not needto concludethatthere hasbeenasubstantiallessening ofcompetition withinthe relevantmarket.IntheOIPMI (and allfuture market

THE COMMISSION HAS RECOMMENDED THAT GAUTRAIN AND METRORAIL OPERATIONS ARE INTEGRATED INTO A SINGLE OFFERING

inquiries), thecommission is only requiredto decide whether there has been an adverseeffectoncompetition inthemarket.Thisisarguably a much lower threshold and oneof thereasons thecommission may beopting to conduct marketinquiries in certain industriesinstead of investigations.

Once theOIPMI isconcluded, thecommission may, among otherthings, make recommendations fornew or amended policy, legislation or regulation,initiate acomplaint on the basis of the

information obtained during the market inquiry, or recommend thatthe Competition Tribunal makean order inrelationtodivestiture.

Given thenew prescribed timelines forcompleting market inquiries,market participantscanexpectafastpaced process, multiple stakeholder engagements and tightdeadlines for responding toextensive information requests. Since the commission’s recommendations inprevious market inquirieshave substantially influencedoperations in some industries,market participants wouldbe well advised tounderstand the scopeof theinquiry withthe necessary proactiveness and be prepared to engage fully withthecommission.

FINAL PPTMI REPORT

The commission recently published thefinal PPTMI Report.In summary,itindicatesthatthepublictransport network lacksintegration, hasaskewedsubsidysystem and requirespolicy frameworks. Someof thekey findings and recommendations aresetoutbelow.

● Integration: The report indicatesa lackofefficiency and co-ordination, particularly in the passenger rail sector. Thecommission found thatpublic transport

systems operate in silos with duplicated infrastructureand not asan integratednetwork.

The commission has recommended, among other things, that Gautrain and Metrorail operations are integrated into asingleoffering.

● Skewed subsidysystem:

The commissionindicates that the current subsidy scheme excessively favours buses and railway services, with the taxiindustry receiving just 1%of the allocated government subsidyeven thoughitcarriesabout66%of commuters. Thecommission has recommended an equitable allocation of subsidies through a subsidy policy which recognises both the taxiindustryandruralbuses.

● Bus services: The commission foundit isunreasonably difficult for newcomers toenter thebusservices market dueto the moratoria on bus service operating licences.Toaddressthisdifficulty, the commission has recommendedanoverhaulof the system for issuing operating licences and the removal of all quantity restrictions. Another recommendation is that Prasa’s Autopax operation must become structurally separate from Prasa’s facility operations, toprevent pricediscrimination against nonPrasabusoperators.

● E-hailing and metered taxis: The commission found that e-hailing services and metered taxis face numerous regulatory challenges.The commission recommended that e-hailing services and meteredtaxisberegulatedby the same legislation. This shouldallowmeteredtaxisto have accessto thesame areas and price opportunities that e-hailing services alreadyhave.

The outcomes of the recentretailanddataservices market inquiries indicate that market inquiries are a powerful enforcement instrument that the competition authorities will continue toutilise.

In previous years, market inquiries have taken an extensive amount of time, resources and expenditure to complete. It will be interesting to seehow the recommendationsofthePPTMIwill beimplementedandwhether the OIPMIwill becompleted inthe18monthsstipulated.

THE COMMISSION FOUND E-HAILING SERVICES AND METERED TAXIS FACE NUMEROUS REGULATORY CHALLENGES

BUSINESS LAW & TAX

How patents truly protect and serve

• While there are many approaches to intellectual property, patents will bring you the biggest rewards

Rowan Forster ENSafrica

Recently, there was a fascinating article onintellectual property (IP)in the Harvard BusinessReview,

“Elon Musk doesn’t care aboutpatents. Shouldyou?” was always going to enjoy considerable attention.The opening linesvery muchset the tone: “Ownership seems straightforward inbusiness: geta patentorcopyright when you create something. Charge forits use.Avoid ambiguityabout whoowns what. But much of this wisdomiswrong.”

The authorsgo onto say that the “world’s savviest businesses alreadyknow this”.They saythat HBOtolerates theft,SpaceX forgoes patents and Airbnb started operating withouteven knowingwhether itsproduct offering waslegal. We’re introduced tothe term “ ownership engineering”. We’re

also told about three ownership engineeringstrategies, namely:

1. Tolerating theft

HBO chose notto pursue people who wereusing the passwords of others and thereby “stealing” content. Instead, itdecided tolet the unauthorisedusage growthe brandandcreateanaddiction tothe product.Microsoftdid the same with its software in China, withBill Gatessaying: “As longas they’regoing to steal itwe want themto steal ours they’ll get sort of addicted and then we’ll somehowfigure outhowto collectsometime inthenext decade.”

Microsoft hasseemingly

OF THE THREE IP RIGHTS, THE PATENT PAYS THE GREATEST DIVIDENDS, WITH AN AVERAGE 36% HIGHER REVENUE PER EMPLOYEE

figureditout,withChinanow accounting for 10%of the company’s annualrevenue.

The authors evensuggest this thinkinghasapplicationinthe luxury goods market, citing a study that showed 40% of people whobought counterfeitluxury goodswent onto buythegenuineversionlater.

2. Foregoing ownership

The authorsargue thatthe basis for legal ownership is misplaced. Thereare substitutes available such as secrecy. Musk isquoted as follows: “We essentially have nopatents.Ourprimarylongtermcompetition isChina.If we published patents it wouldbefarcicalbecausethe Chinese would justuse them asarecipebook.”

The authorsalso argue thata commonstrategyis building ontop ofanother platform.

3. Leaning in to ambiguity

The authorsargue thatlegal clarity asto ownershipis less important thanmany believe. Theycite thefactthat lackof clarity didn’t stopUber from

Kenya gives clarity on withholding taxes

Karen

Miller & Joon Chong

Webber Wentzel

Arecent decisionby theTax Appeals Tribunalof Kenya has providedmuch-needed clarity onwithholding tax payable by SAresidents who provide servicesto Kenyan entities. Kenya appliesa 20% withholding taxon payments made forservices rendered by nonresidentsto Kenyan residents. SAresidents providing suchservices have argued thatthe withholding tax provisionsshould not applybecauseunderArticle7 ofthe SA-KenyaDoubleTax Agreement (DTA), SAhas the taxing rights on the service income (providedthe SA entitydoesnothaveapermanentestablishmentinKenya).

The Kenyan Revenue

Authority (KRA)has, however,argued thatArticle7 does notapply andit has sought toimpose thewithholdingtax.

This issuehas finallybeen ruledon intherecent caseof McKinsey andCompany Inc v Commissionerof Legal Services BoardCo-ordinationheld atthe TaxAppeals TribunalinKenya.

COMFORT

The tribunal, findingin favour ofthe taxpayer,heldthat professional feespaid bythe Kenyan entity tothe SA service providerfell within Article 7 of theDTA and that theKRAhad norightto withhold taxeson thepaymentofthefees.

While theKRA may appealthe decision,theoutcome ofthis caseprovides somecomforttoSAresidents

providing servicesto Kenyan entities. Thereshould beno Kenyan withholding taxes imposed on service fees paid bytheKenyanentitytotheSA entity. Where withholding taxes have alreadybeen withheld and paid to KRA,it should be possiblefor theSA resident entity to claima refund. (This also meansthe SA entity would not qualifyfor any section 6quatrebate claimed on theKenyan withholding taxes,againstSAincometax.)

THE OUTCOME OF THIS CASE PROVIDES SOME COMFORT TO SA RESIDENTS PROVIDING SERVICES TO KENYAN ENTITIES

UNDER THE SPOTLIGHT

starting a business where car ownerscharge peoplefor conveying passengers, or Airbnb fromstarting abusinesswhere apartmentowners charge holiday makers. They citethis aphorism: “It’s better toask forforgiveness than permission.” Ownership ambiguity, theysay, creates “legitimate and valuable businessopportunities”

There’seventalkoftheold Americanwest, wherepeoplesimply claimedownership.Accordingtotheauthors “onlylater didthe lawarrive and, when itdid, states often recognised early-bird claims”

Some thoughts in rebuttal

The article is interesting indeed. Yet, asIP lawyers, we obviously have some issues with it. Justrecently there wasanarticleinForbesabout how aUS start-upinvested

heavily inIP fromthe outset and, thoughit struggledfor a number of years while the patentswere beingregistered,itwasfinallyabletouse theIPtogetridofthecompetition.

A recent joint report of the European Patent Office and the EUIntellectual Property Office makes thepointthat businesses with at least one registered patent,design or trademarkhaveanaverageof 20% higherrevenue per employee than businesses withnoIPrights.

Of the three IP rights, the patent pays thegreatest dividends, withan average36% higher revenue per employee.These figuresdo,we suggest, establish a clear link betweenIP ownershipand commercialsuccess.

Eversince theVenetians granted exclusivity to the

Muranoglass makersinthe 15thcentury, we’ve been granting time-limited monopolies (generally 20 yearsfor patents)toinventive people. Thereis simplyno doubt thesystem of monopoly protectionin exchange forinformation has played a significantrole in technological progress. Much ofthis progresshasbeen good weseeit nowmore than ever withCovid-19 vaccines (though there is controversyas towhetherthese patentsshould besuspended inthistimeofcrisis).

As forMusk’s comments about China, they do sound a bit dated China is increasinglypartoftheIPworld. The Harvard Business Review article is, without doubt,a crackingread,but we don’tthink ittells the wholestory.

Nema rules changing

Garyn Rapson & Lerato Molefi

Webber Wentzel

OnApril222021,theforestry, fisheriesand theenvironment minister published notice of herintention to amendforthe thirdtimethe transitional arrangements containedintheNemaFinancial ProvisioningRegulations, 2015(FPRegs).

The FP Regs were published on November 20 2015, creatinga provisionapplicableto holdersofprospecting or miningrights whoapplied forsuch rightsbefore November20 2015,regardlessof whenthe rightwas obtained.The effectofthis provision was thatthe holder ofsuch rightsmustnow complywiththe FPRegsno laterthanJune192021.

Until finally transitioned, suchholders areregardedas havingcomplied withthe provisions ofthe FPRegs if the holder continuesto com-

ply with the old Mineral and Petroleum ResourcesDevelopment Act, 2002system of calculating andannually assessingits financialprovisioningfor rehabilitationand closure.

TRANSITION DATE

The proposed amendment seeksto furtherextendthe transitiondate forcompliancetoJune192022.

Thisfurtherdelayinterms of thetransition tothe FP Regswasinevitablebecause:

● We know thatthe FP Regs are to be repealed and replaced by a new set of financial provisioning regulations:

● Thefirst draftsetof replacement regulations was publishedon November10 2017underGNR1228;

● The second draft of the replacement regulations was published onMay 172019 underGNR667;and

● Thedepartment hasindicated thata third draftof the

replacement regulationsis beingprepared, whichwe expect willagain beissued forpublic commentbefore thefinal replacementregulationsaregazetted;and ● The replacementfinancial provisioningregulationscannot be madefinal until National Environmental Management LawsAmendment Bill IV (Nemlaa4) has beengazettedintolaw.

Nemlaa 4plays acrucial partinthis puzzleasitproposes a rangeof changes to theNema, whichchanges mustbemadefinalbeforethe finalsetofreplacementregulationscanbepublished. Members of thepublic are invitedto submitcomments onthe proposedamendment of the FPRegs transition date byMay222021.

We suspect that the miningindustrywillnotbejumpingto opposetheamendment,asthefurtherextension ofthedeadline willbeawelcomereliefformany.

BUSINESS LAW & TAX

Huge potential on SA’s green hydrogen map

• Legal certainty is needed and infrastructure shortfalls must be dealt with to boost investment

Kieran Whyte Baker McKenzie

It wasrecentlyannouncedthat SA’s Hydrogen Society Roadmap is expectedtobesubmitted tothe cabinet for approvalat theend of2021, orinearly2022.

Theroadmap willexplain how thecountry’s resources, including reliablesources of renewable energysuch as solar and wind, aswell as its ample supplyof platinum groupmetals (PMGs),canbe effectively harnessedto producegreenhydrogen.

SA beganthe processof creating policy forthe green hydrogen marketby implementing theGreen Hydrogen Atlas-Africa initiativein July 2020.As partof this,the roadmap is intended to provide aguide forthe country’s transition toa hydrogenbased energysystem. The roadmapwillbeapolicydocument outliningthe costs, challenges, gaps,benefits and potential ofgreen hydrogen, with theaim ofeventually incorporating itinto SA’s renewableenergyplan.

A recent reportby global law firmBaker McKenzie, “Shaping Tomorrow’s Global Hydrogen Market” outlines how, despiteregulatory challenges, legalcomplexity and the current lackof incentives to investin decarbonised hydrogen withoutgovernment support, important

opportunities existfor businesses seeking to reap firstmoveradvantages.

SA’sgreen hydrogenpotential couldproduce significant advantagesfor investors andthe country,butlegal certainty isneeded, and infrastructure shortfalls must be dealt with. Whileit is still early in the process, transactions havebegun aroundthe worldandinvestorsarestartingtolook atwhatgovernments are doing to support hydrogen initiatives.As such, theroadmapiseagerlyawaitedbytheenergysector.

HYDROGEN IS A WAY FOR COUNTRIES TO REDUCE EMISSIONS AND TO LIMIT GLOBAL WARMING TO BELOW 2°C

The reportoutlines how countries have been rapidly concluding that a successful decarbonisation pathcannot solely rely on renewable electricity andthat azerocarbon hydrogen solution is needed. The report explains how governments around the world are supporting decarbonised hydrogen, as they did withrenewables, to drivedowncost.

For example,the report detailshowhydrogen-related

research anddevelopment (R&D) budgets in China, the EUand Australia,forexample, are on the rise. In 2018, funding forhydrogen-related technology research and pilots increased 8%, representingmore than$50bnin USdollarequivalent.Thisrise inglobalR&D fundingcanbe largely attributed to an rise in spending from China, whose budget almost quintupled in onlythreeyears.

In2021, theEU isexpected to institute a long-lasting and ambitioushydrogen research programme as part ofits “Horizon Europe”, including a new “European partnership” for hydrogen. In essence, this partnership is an R&D association specifically dedicated to hydrogen researchwiththeobjectiveof dealing with “market failure forfirstmovers”

Australia adopteda National Hydrogen Strategy in 2019, which sets a path to build Australia’s hydrogen industry. Thegovernment plans toaccelerate thecommercialisation ofhydrogen, reduce technicaluncertainties and buildup its domestic supplychainsandproduction capabilities. The Australian Renewable EnergyAgency (Arena) has identified renewablehydrogen asone ofits threeinvestmentpriorities.

In2019, Japanadopteda new strategic roadmap for hydrogen, making the development of hydrogen technol-

ROAD TO RENEWABLE ENERGY

ogyoneof itscentrepieces.It is working toward decreasing the costof decarbonised hydrogen productiontenfold by 2050. Also, in 2019, South Korea announced its hydrogen economy roadmap and Ulsan’s future energy strategy, with aprimary focus on leading the hydrogen vehicles andfuel cellindustry as well asestablishing asystem for hydrogen production and distribution.

Hydrogen isconsidered to be essentialin SA’s new energymix, dueto itsimportantroleincombatingclimate change and delivering on decarbonisationtargets.

According tothe report, there isa growingconsensus in academia, industry and among political leaders that a decarbonisation path based (quasi-)exclusively on electricity networks (an “electricity only” model) is unrealistic and too expensive.Deepdecarbonisation will require of hydrogen to satisfythe current industrial demand; no molecules, no deep decarbonisation.

Clean hydrogen also allows countries tomeet the goalsoutlinedintheParisClimate Agreement. The report notes thathydrogen isa way for countries to reduce emissions andto limitglobal warmingtowellbelow2°C.

The reportnotes that within just a few decades, all the world’s energy needs,

electricity, industry, transport, buildings and agriculturewill haveto comefrom carbon-free sources.This will require huge changes in little morethan asingle generation, and innovative solutions, technologies and policies. Hydrogen will play a crucial rolein makingthis fundamental change to the globe’senergysystems.

The hydrogenmarket is alreadybigandgrowing,with total demandlisted inthe report at around 115-million tons in 2018, representing $135.5bn. Hydrogen also holds long-term promise and isexpectedtoreach$25bnby 2030. Future applications include road transport, maritime and airtransport, buildings and energy-intensive industries.

SA hasexcellent renewable energy capacity, especially in windand solar, whichcan beused togenerate the energy needed to split water into hydrogen and oxygen. However, the current renewable energy programme will haveto be upscaledtoraisecapacity.

Additionally, clearpolicy and a regulatory environment that encourages investmentwillenableSAtobepart of this energy transition and benefit considerably from exporting green hydrogen to other parts ofthe world. Green hydrogen could also beutilisedto growSA’s clean

energysupply viaadecarbonisedenergysystem.

Toexportgreenhydrogen, SAneeds todevelopthe infrastructure necessary to store andtransport theproduct. And while capital outlay and investment are needed, jobs couldalso becreated by newincome-generatingventures.

So far,developments in the hydrogenmarket inSA have mostly come through themining sector.Its ample supply of PMGs is an advantage asPGMs canact ascatalysts during the electrolysis process that converts water intohydrogenandoxygen.As such, a zero-carbon hydrogen solution is one of the key evolvingend-usesforPGMs. New solutionsare urgently needed todeal with Africa’s power crisis and boost its postpandemic recovery. Suchsolutions must consider the energy transitionandtheglobaldrive towards adecentralised, decarbonised andsecure energy supply that tackles climate change and stimulateseconomicgrowth. Green hydrogencan lower energy costs,increase the power system’s flexibility and facilitate the decarbonisation of African industries. Itsbenefitsare ampleandthe opportunities it will create, not only forSA but other African countries, look very promising.

Weapons cannot be carried during strikes

Lizle Louw, Shane Johnson & Justin de Wet Webber Wentzel

TheLabour AppealCourthas ruledthat employeescanbe dismissed forcarrying weapons during a strikeand it is reasonable toexpect themto knowthatthisisadismissible offence.

The court recently confirmedthat itisfair todismiss employees whocarry weapons duringa strikeand that employers canreasonably expect employeesto know that havingdangerous wea-

ponsatwork (orduringa strike) isunacceptable anda dismissibleoffence.

The dismissed employees were Numsamembers employedby Pailpac(Pty)Ltd, who participatedin aprotected strike,during which they carriedweapons (sticks, PVC rods, sjamboks and golf clubs).Theywerechargedfor “brandishing andwielding weaponsduringastrike”

The employeesreferred an unfair dismissaldispute to the Metaland Engineering Industry BargainingCouncil for arbitration,where their

dismissals were foundto be unfair. Pailpac appliedto the labour courtto reviewthe arbitration awardbut the labour lourt upheld it. Pailpac then appealed tothe Labour AppealCourt.

The primaryissue wasto determine whetherthe dismissed employees were awareof therulenot tocarry weapons duringthe strike. The picketingrules were placedon theofficialnotice board where employees obtained various workrelated information, for example whatdoctors they

could see. Itwasclear tothe LabourAppeal Courtthatthe dismissed employees were fully awareof theirobligation to read thenotices and other communications postedon the board.Accordingly, the courtfound thattheemployeeswere aware,orcould reasonably have been expected to be aware, of the picketingpolicy.

While thejudgment turnedonthe questionofemployees beingaware of workplace rules,the Labour Appeal Courtstated thatany reasonable employee would

inany eventknow thathaving dangerousweapons at workisnotacceptable.

In terms of the sanction of dismissal, thecourt therefore heldthat: “[30] As acknowledgedbythe arbitratorinher award, anyreasonable employee wouldknow that bringingadangerousweapon towork wouldnot betolerated.Thus, todoso inflagrant disregardof aclear workplace rulewhich prohibits such conductduring a picketorstrike,andexpressly warns thatthe consequence of the breachis the sanction

ofdismissal.”

The practicalrelevance of the judgment is thetest to be applied whenemployees claim they werenot aware of workplace rules.The correct test isnot onlywhether the employeeswereawareofthe rule, but alsowhether they couldreasonablybeexpected tobeawareofit. Itis alsorelevant thatthe Labour AppealCourt. confirmed thatsticks, pipes, sjamboks and golf clubs are “dangerous weapons”,a term which is usuallyfound in picketingrules.

BUSINESS LAW & TAX

JSE seeks listing efficiency

• The bourse has released a consultation paper for input on proposed changes to reduce red tape

Riyaad Cruywagen & Elodie Maume Webber Wentzel

TheJSE hasissued a consultation paper proposing changes tothe listings regulationsto cut redtape andachieve an effective, fit-for-purpose set of regulationsfor financial markets.

In March, theJSE released this consultationpaper to obtain inputfrom market participants and stakeholders on proposed changesto the listingsrequirements,priorto actual amendments going throughtheformalprocess.

This is the second consultation paper issuedby the JSE. Theprevious consultation paperwas issuedin September 2018and focused on improvingthe regulation of primaryand secondary listings. Itresulted infinal amendments to theJSE listings requirements,which came into forcein December 2019.

Key areas of focus in the latest consultationpaper includetheapprovalrequired fortransactionsinthenormal course ofbusiness, share repurchases, capitalraising by bookbuilds,allowing directorsto followaright offer during aclosed period and removingthe obligation to publish anabridged version ofthe issuers’ financial resultsonSens.

Otherproposals relateto the removal ofthe requirementsfor (i)pro formafinancial information in the case of a disposal by the issuer; (ii) revised listingparticulars in the case of certain acquisition transactions; and (iii)a working capital statement to be included inthe circularon category 1disposals, where the consideration ispaid in cash.

The JSE proposes the following measuresfor discussioninrelation tothesekey areas:

● Enhancing the “ordinary course ofbusiness” exemption forcategory transactions andrelated-party transactions. The listings requirements currentlyprovidecertainexemptionsfrom the requirements applicable to categorytransactions and related-party transactions, which includepublication of a circularand/or shareholder approval ofthe transaction.

One ofthese exemptions applies totransactions inthe ordinary courseof business, where thetransaction's considerationisequal toorless than 10% of the issuer’s marketcapitalisation.

TheJSE proposesthat transactions inthe ordinary course of businessshould no longer be subjectto the categorisation requirements. Alternatively, the JSE is con-

THE JSE PROPOSES ORDINARY COURSE OF BUSINESS TRANSACTIONS WITH RELATED PARTIES SHOULD BE ANNOUNCED THROUGH SENS

sidering increasingthe thresholdfrom 10%to30%, so transactions thatfall withinthe ordinarycourseof business will only require shareholders’ approval when they are categorised at (or above)30%.

In anyevent, issuerswill still berequired toengage with theJSE todetermine whether their transaction falls within the “ordinary course of business” exemp-

tionandtheJSEwillmakethe finaldetermination.

The JSE believes the proposalwillaffordissuersmore flexibility whenconducting their business from a cost, timing and resources perspective. It willalso bring the JSEinline withtheLondon Stock Exchange’s requirements,which providefora similar exemption, however withoutthe10%limitation.

TheJSEalsoproposesthat ordinary course of business transactionswithrelatedparties should be announced through Sens, and deal with the pertinent detailsof such transactions.

● Intragroup repurchases of securities. The JSEproposesto removetheapplicationof thelistingsrequirements and the required shareholders’ approval on intragroup sharerepurchases, provided the share repurchases take place (i) between the issuerand its wholly ownedsubsidiaries; or(ii) betweenthe issuerand Schedule 14 share incentive schemes (shareschemes controlled by the issuer to incentivise employeesand approvedbytheJSE).TheJSE states thatany repurchaseof securities must also comply with the provisionsof sections 46and 48of theCompaniesAct.

Inaddition,the effectofan intragroup repurchaseas described above is different from other repurchases because there isno money leakage from the issuer’s group and noimpact upon the earningsper share,headline earnings andnet asset valueper share,nor doesit benefit one shareholder over another.TheJSEarguesithas no activeregulatory roleto play,other thanthroughdisclosure of therepurchases in theannualreport.

● Capital-raising through

EXCHANGE OF IDEAS

generalissues ofsharesfor cash. The JSEproposesto allow related partiesto participate in issues of shares for cash pursuant to general authorities, subject to certain conditions.Currently,thelistings requirementsprohibit related parties from participating under a general issue for cash authority, which can severelylimitthebenefitsofa bookbuild byeliminating potential participants who couldbeinterestedinprovidingcapitaltotheissuer ● Oneof themostcommon capital-raising methods in the market is the bookbuild process,often onanaccelerated basis, which allows issuers to achieve the best priceatwhichtoissueshares to shareholdersand/or investors. However, related partiesof theissuercould possiblyinfluencethepriceat which shares may be issued during the bidding process, more so when they hold a material interest in the issuer.

For thatreason, theJSE proposes that related parties mayonly participateina bookbuild capital-raising process byputting ina bid “at

best”, where related parties are excluded from a price formation biddingprocess. Theymayonlytakeupshares once thefinal issueprice has been determined on the completion of the bookbuild process. This will result in related parties being permitted to take up shares under a general issue ofshares for cash authority through a bookbuild, butonly onthe basis they are price takers (at best),notpricemakers.

The shareholderresolution granting the general authority to issueshares for cash will need to state that related parties are allowed to participateintheoffer.

● Directors’ participation in rights offers during closed periods. The listings requirements precludedirectors, prescribed officers and company secretaries (excluded parties) from participating in a rights offerduring a closed period (atimeframe froma financial period end until the date on which the relevant financials of the issuer are published or any period where the issueris trading under a cautionary announcement). TheJSE

recognises that not allowing excluded parties (who hold sharesintheissuer)toparticipate could negatively affect the issuer’sability toraise cash, since the excluded partiesareoftenconsideredtobe natural contributors of cash totheissuer.

The JSEproposes to remove the limitation on excluded partiesfollowing entitlements pursuant to a rights offerduring aclosed period. This proposal would bring the JSE in line with the London Stock Exchange requirements. TheJSE isalsoconsidering extendingthis proposalto capitalisationissuesandscrip dividends.

● No abridged report on published audited information. The JSEproposesto remove the requirement to publish an abridgedreport of the financialresults onSens when theissuer haspublished its audited annual financial statements. The abridged report provides no additional value when the annual financial statements and the short-form results announcementshavealready beenpublished.

The battle in Africa to curb iIllicit financial flows

Celia Becker ENsafrica Illicit financial flows remain a hugeissueonthecontinent.

Accordingto a2020UN report,an estimated$88.6bn leaves Africa annually due to capital flight and the continentloses between$30bn and $52bna year dueto misinvoicing,particularly inthe extractivesector.

African countries have largely been unableto stem illicitfinancial flowsdueto

nothaving stronginstitutions, not having thecapacity to monitor large multinationals andnot collectingthe rightdata.

There is aclear need for strengthening relevant institutionsand collectingmore andbetter data,requiringan increasedinvestment indata infrastructure.

African governments shouldalso strengthentheir engagement ininternational taxationreform andreview tax treatiesto aimfor

moretaxingrights.

Various African jurisdictionsare alreadyimplementing bilateral reformof their taxtreaties. Forexample, Senegaland ZambiaterminatedtheirtreatieswithMauritius.Botswana signedan amendingprotocol toits Mauritiustreaty.

The Kenya-Mauritius treatybecamethesubjectofa high court casein Kenya in 2019, whenthe TaxJustice NetworkAfrica disputedthe constitutionalityof thetreaty

interaliaon thebasisthatit limited Kenya’s taxingrights undervariousarticles.

In the recent past, various African jurisdictionshave alsobeen implementingspecifictransfer pricingregulations(generally basedonthe OECDguidelines), buttax auditorstasked withenforcingthese provisionsoften lackthe requiredtechnical skills,experience andbusinessknowledge.

Multinationals often attemptto bypasslocaltax

systemsas theyareperceived tobe unfairand subject to ahigh degree of administrative and/or politicaldiscretion.

Toensure thatAfrican jurisdictionscollect theirfair shareoftaxes,butatthesame timekeepandencourageforeigninvestment, clearand simpletax systems,which aretransparent andtrusted by taxpayersto befairly appliedare oftheutmost importance.

Revenue authorities

shouldalso buildadequate systemsand improvethe skillsoftheirstaffmembers. Thecombating ofcorruptionandanti-moneylaunderinginitiatives shouldbe scaledup.

AnumberofAfricanjurisdictions, includingAngola, Ghana, Kenya, Mauritius, Rwanda andSeychelles, amongothers, haverecently introduced orstrengthened anti-money launderinglegislationand guidelines,which isastepintherightdirection.

BUSINESS LAW & TAX

Litigation has begun to test Popia limits

• The rules of court override privacy interests under the Protection of Personal Information Act

Nicole Gabryk, Era Gunning & Shenaaz Munga ENSafrica

In therecent judgmentof Divine InspirationTrading 205 (Pty) Limited v Gordon andOthers, the Western Cape High Court found, inessence, that therulesofcourtoverridethe interests protected under the Protection ofPersonal Information Act, 2013(Popia) and orderedthat personalinformationbedisclosed.

Inthis matter,theapplicants sought anorder for the disclosureof KatherineGordon’s medical records from hermedicalpractitioners.The recordswererequiredforthe determination of an action whereinGordon wassuing the applicants fordamages of R7m (as a result of injuries she sustained inan accident whenshe visitedtheapplicants’premises).

Gordon’s medical practitioners refusedto makethe medical recordsavailable to theapplicants, despitehaving received a subpoena, on the basis that theNational Health Act,2003directsthatrecords cannotbe disclosedwithout Gordon’sconsent.

Prior to thelaunching of the application,the applicants deliveredanotice intermsof rule 35(3)requesting Gordon to makethe medicalrecords available, but therequest was refused on thegrounds that they arenot inher possession.Gordon opposedthe

THE MEDICAL PRACTITIONERS REFUSED TO MAKE THE MEDICAL RECORDS AVAILABLE TO THE APPLICANTS

applicationfor thedisclosure of the records on the grounds that the discovery thereof would infringe onher right to dignity andprivacy andthat thedisclosure ofthesedocumentswould impingeonher rightsunderPopia.

Section11 ofPopiacame into considerationby the partiesand thecourt.This section provides that personal informationmay onlybeprocessedif:

“(c) processing complies with an obligation imposed by lawon theresponsible party;

“(f)processing isnecessaryfor pursuingthe legitimateinterests ofthe responsible partyor ofa third party to whomthe informationissupplied”

The courtrejected Gordon’s argumentthat thedisclosure ofher medical records would unjustifiably trample on herrights. The

courthighlighted thatsection 11(3) provides that a data subject (Gordon) may object to the processing of personal information in limited circumstances. In carving out this exception,the legislature specifically excluded the processing ofinformation where itis requiredto complywith anobligationimposedbylaw. The legislature had therefore made provision forthe processingof informationirrespectiveof anobjection receivedfromadatasubject.

The court found that Gordon’s medicalpractitioners areresponsible parties(as definedbyPopia)andanobligation to deliverthe medical recordshadbeenimposedon thembylawbyvirtueofthem having received the subpoenas.The courtdid,however,

acceptthat Gordoncould,in termsof section11(3) ofPopia, objecttotheprocessingofher information and consequently thatthe responsible party wouldno longerbe ina position to processher personalinformation.

In balancingthese sections,thecourt hadregardto section 12(2)(d)(iii)of Popia, which permitsthe collection of datafrom asource other thanthedata subjectwhenit is required for the conduct of proceedings inany courtor tribunal. This isfurther supportedbysection15(3)(c)(iii)of Popia, which provides that the furtherprocessing ofpersonalinformation onceithas beencollectedis allowedifit is necessary forthe conduct ofproceedingsinanycourt.

Rather surprisingly, the

court did notconsider that Popiawillbecomefullyeffective only on July1 2021 and thathealth informationconstitutes “special personal information”

After July 1,when Popia is fully ineffect, itis likelythere willbeaspikeindatasubjects relyingon therightsafforded by Popiaduring thecourse of litigation proceedings(for instance in utilising data subject access requests as alternative mechanismsto obtain disclosureof documents orin objectingto arbitration proceedings on the basis of dataprotection concerns). Undoubtedly, there are many unknowns in respect ofPopia litigation. However,onethingiscertain: litigation involving Popia is inevitable.

Roles for private equity in business rescue

Elliott Wood & Bafana Ntuli

Werkmsans

It goeswithout sayingthat business rescuein SAhas created anopportunity for privateequity playerstoparticipate inbusiness rescue proceedingsin oneformor another.

Chapter6 oftheCompaniesAct 71of 2008 governs SA’s businessrescue regime. If a company becomes financially distressed, it may and often doesinitiate business rescueproceedingssubjectto theCompaniesAct.

The privateequity market remains mostlyunregulated in SA, but depending on structures usedfor private equity funds,the private equity fundmanagers and/or bespoke natureof a private transaction,certainlegislative frameworksmayapply.

Itistritethatprivateequity investments,ifdoneright,can provide genuinevalue creation forinvestee companies, shareholders and other stakeholders. Typically privateequityinvestmentsentail

a fundingboost andsupport for theinvestee company’s managementteam. In a business rescue context, private equity firms may fund financiallydistressed companies and/or acquire theirviablebusinessassets.

Private equityinvestments cantake different forms, includingdebt and/or equity funding,asset purchase, leveragedbuyouts and/or mezzanine funding. Indeed, privateequity players cantakeupdifferentrolesina company underbusiness rescueproceedings.

In additionto biddingor otherwise tryingto acquire viable businessassets, private equityplayers can provide post-commencementfinance (PCF) to assist the distressedcompany stay afloat and meetits shortand/or long-termfunding obligations.

Such financingis necessary as thedistressed companyisbeingrestructured.

There are commercial opportunities for private equity playersand other investment housesto capi-

taliseonthestatutorybenefits of offeringPCF toa company in financialdistress. A detailedreviewofsuchstatutory benefits interms of Chapter 6 ofthe Companies Act is beyondthe scope of thisarticle. However,thefollowing overviewsets out salient points with regards to thepriorityaffordedtoPCF:

● PCFcan besecuredby security overthe unencumbered assets of the distressed company;

● Putting upPCF funding comeswith thebenefitthat you jump thequeue (while youfallbehindsecuredcreditorswith respecttorepaymentfromthesaleofsecured assets, such funder gets a jump onunsecured creditors andranksaheadofthem);

● The antidilutionprotections offunders (discussed below) may,subject tocompetition lawconstraints, be available to the provider of PCF,enablingsuchfundersto jumpthe queueshouldthe business rescuepractitioner sellthe assetsof thedistressedcompany;and

● Theability ofthebusiness

rescue practitionerto entirely, partiallyor conditionally suspendor cancelthecompany’s obligations during businessrescuemayassistto make theasset (notwithstanding thefinancial distress)moreappealing.

Private equityplayers and otherinvestmenthousesmay also purchase the debt of the distressedcompany atadiscount.This ismorecommon in foreignjurisdictions and depends onthe mandateof the fundmanager, asthese areoftenriskiertransactions. Thereare alsosomekey issues thatbusiness rescue practitioners and distressed companies shouldtake note of when engagingwith privateequityplayers(thisisnot anexhaustivelist):

PRIVATE EQUITY PLAYERS CAN OFTEN LEVERAGE THEIR STRONG POSITION TO SOURCE BETTER FINANCE DEALS

First, thesourcing of finance by adistressed company may be difficult given the reasons for the company being underbusiness rescue. Private equityplayers are able to raise funds from their own investorsor sponsors, third partiesand/or banks. Private equityplayers can often leveragetheir strong positioninthemarketplaceto sourcebetterfinancedeals.

Second, ifthe private equity firmintends toinject funds ina distressedcompany by acquiring an equity interest in such a company, suchprivatefirmmayrequire antidilution protections to protect the value of its equity shareholding. Thiswould be thecase intraditionalprivate equitydealsinanyevent.

Risk-mitigating strategies for aprivate equityfirm would include pre-emptive rights,tagalongsand/orprior consentfor anyfurtherrights issue by thecompany as well as the ability totrigger an exit event giventhat privateequity firmsusually havespecific timeframes fortheirinvestmentsorportfolios.

Third, subsequentto providing funding,the private equityfirm mayat timesnot be involvedin theday-to-day management andoperations of the company and may lack control overthe underlying businesses. Therefore,to mitigatesuch risk,theprivate equity playermay request various minorityprotections andvetorights forkeymatters on thedecisions to be taken by thedistressed company.This, ofcourse,also impacts theassessments in regards tocompetition approvalswhich maydelaya transaction,whichisnotideal when dealingwith adistressed company.The regulators do permit,in certain circumstances, expedited approvals basedon a “failing firm”concept.

Ultimately, withthe above being said,private equity playersare likelyto needa clear exit strategy in mind subsequent to fundinga distressed company.Therefore, there mustbe areasonable prospect of rescuing such a company forprivate equity playerstogetinvolved.

BUSINESS LAW & TAX

Labour and business rescue

• Employers

in companies undergoing remedial action should not ignore the rights of workers

Rosalind Davey, Chloë Loubser & Nikita Reddy Bowmans

Companies in business rescue have plenty of worries, but legalchallenges toretrenchment are notusuallytopofthelist.

Afterall, suchcompanies areinsu latedfromlegal action, includingemployee claims,throughthemoratoriumonlegalproceedingsprovided for in section133 of the CompaniesAct,2008.

This moratorium provision,intendedtoallowabusinesssomebreathingspaceto regain itsfinancial viability, shouldnotlullemployersinto complacency. Thereare still avenues employeescan pursue to assert theirrights to a fairretrenchmentprocess.

Withbusinessrescuecasesontheriseasaresultofthe Covid-19 pandemic, employers shouldfamiliarise themselves with the legallie of the land onretrenchments duringbusinessrescue.

It is not unusual for a struggling businessin the midst of businessrescue to seek toretrench employees tosaveonlabourcosts.

Employees have limited leeway tochallenge such retrenchment. Under the Companies Act, tobring a claimagainst anemployerin business rescue,employees must havethe businessrescue practitioner’s written permission or applyto the highcourt forthemoratoriumonlegalproceedingstobe lifted.

Overthe years,some trade unionshave attempted

to challengethe applicability of themoratorium to employmentdisputes.

Theyhavedone soonthe basisofsection 210ofthe Labour RelationsAct (LRA), whichstates thatwhenit comes toemployment matters, if there is any conflict betweentheLRAandanother law (exceptthe Constitution or alaw thatexpressly amendsthe LRA),thenthe provisions of the LRA must prevail.

Theargument goesthat themoratorium intheCompanies Act conflictswith the dispute-resolutionprovisions ofthe LRA,whichmust accordingly prevail.This would meanthe moratorium

THIS DECISION SUGGESTS THE MORATORIUM IN THE COMPANIES ACT DOES APPLY TO EMPLOYMENTRELATED CLAIMS

cannot extend to LRA disputes.This isnot howthe courts have tendedto see the issue,however.

Todate,only acoupleof decisionshavecomedownin support of theview that the Companies Actmoratorium clashes with the LRA and the moratoriumdoesnotprevent aunion frombringingan unfairdismissal claimon behalfofitsmembers.

However, the more common viewwhich hasbeen expressedby theLabour Courtisthat thereisnoconflictbetween themoratorium

provisionsof theCompanies Actandthedisputeresolution provisionsoftheLRA.

Thelatest decisionofthis kind was theLabour Court’s rulingof February8 2021in theSouth AfricanAirways (SAA)case. Thisdecision suggeststhe moratoriumin theCompanies Actdoes indeedapplytoemploymentrelatedclaims. Itconfirms that onlythe highcourt can lift the moratoriumon legal proceedings even where the Labour Court has exclusivejurisdiction tohearthe meritsoftheclaim.

Butthere isoneaspect concerning the moratorium that the courts have not considered yet: whether or not the moratorium specifically applies to a claim brought under section189A(13) ofthe LRA.

Thissectioncreatesaspecific avenue for dealing with disputesaround anemployer’s alleged noncompliance witha fairprocedure inthe contextof a “large-scale” retrenchmentprocess.

In such circumstances, to bringthe partiesbackon track,an urgentapplication for reliefmay belodged with theLabourCourt.

Inthe contextofbusiness rescue,thequestionthatarises is: What impact does the moratoriumon legalproceedingshave onemployees’ rights to a fair retrenchment process?

Going further, how does the moratoriumaffect employees’ ability tobring claimsintermsofthissection oftheLRA?

Proceduralfairness inbusiness rescue The closest thisquestion has

EMPLOYEE LIFELINE

come tobeing airedin court was in 2020 when SAA’s business-rescue practitionersappealed totheLabour AppealCourt overthetiming ofretrenchments inrelation to the publication of the businessrescueplan.

The Labour Appeal Court refused toentertain thebusiness rescue practitioners’ argumentsaboutthemoratoriumbecause theyhadnot raised this during the Labour Courtproceedings.

While our Labour Court has notyet beenrequired to decide onthis issue,there may be scope to argue that themoratorium onlegalproceedingsshouldnotextendto procedural challengesunder section189A(13)oftheLRA.

Partoftherationaleforthe view that thereis no general conflictbetween themoratorium andthe LRAis that employeesare notdeprived of their rightsto continue with their claims against the company at a later stage their claims areonly suspendedduring thebusiness rescueproceedings.

This rationale may not holdtrue forclaims interms

ofsection 189A(13),because suchclaims generallycannot be brought ata later stage. Doing sowould defeatthe purposeofthe provision to bringthe consultingparties back ontrack whilethey are consulting. Claims forcompensation are possible However, where the employerhas beenunder businessrescue, theLabour Court may well be prepared toentertain section189A(13) claimsthat arebroughtafter theretrenchmentprocess.

While the primary purpose of section189A(13) is to compel compliance during consultation,an awardof compensationmay bemade ifthere isno otherappropriaterelief.

This means itis possible forretrenched employeesto bring aclaim forcompensationagainst anemployerthat wasunder businessrescue during retrenchment consultations, provided the claim is madewithin30daysafterthe conclusionof businessrescueproceedings.

Also the moratorium is notanabsolute bartosection

189A(13) claims.Business rescue practitionersmay wellprovide theirwritten consent to claimsthat will have no significant effect on the company’s abilityto regainitsfinancialhealth. Employees and trade unionsalso havethe(more expensive) option of approaching the highcourt to liftthemoratorium sothata section189A(13)claimmaybe pursuedintheLabourCourt. Venturinginto newterritory

Theinterplay betweencompanylaw andemployment lawin thebusiness-rescue context is stillfairly new territoryforour courtsandit remains to beseen how they willdeal withsection 189A(13)claims.

In the meantime, employers in businessrescue should not be complacent or disregardtherightsofemployees. Evenifthe riskofurgent applicationsisreduceddueto thehurdles potentiallycreatedby themoratoriumprovision ofthe CompaniesAct, there are still avenues available to employees to seek relief.